Fallen Angels Among Emerging Markets

Recalling Sir John Templeton's advice to buy when there is "blood in the street," Jim Powell sees opportunity in emerging markets that have fallen out of favor. Here, the editor of Global Changes & Opportunities Report looks at the long-term potential for eventual rebounds in Brazil, the Philippines, and Russia.

Steven Halpern: Very good. Thanks for joining us. The term "fallen angels" most often applies to individual stocks that have temporarily fallen out-of-favor, but you note that under certain circumstances an entire emerging market can be considered a fallen angel. Could you expand on that?

Jim Powell: Yes. You are absolutely right. The parallels are strong. We take a country, for example, like Brazil, or Philippines, or Indonesia, or any of the other countries that were doing very well during the economic expansion.

They have young, energetic work forces and lots and lots of commodities to sell and then you have the global slowdown—the economic slowdown that we have had the past few years—and they can have the same sort of pattern as a fallen angel company can have.

They just see their economies begin to shrink and their unemployment goes up and so forth. I call them fallen angels because they won’t stay down for very long. None of these countries—I don’t believe—are going to go back to the poverty and very slow growth of their past.

They simply are not going to put up with it, and the minute that conditions turn around, their fortunes will turn around and I think there is going to be a lot of money to be made by investors who buy into them now.

Steven Halpern: Now, in your latest research report to highlight the concept of fallen angels, you recall a famous anecdote from Sir John Templeton regarding investing when there is blood in the streets. Could you comment on that?

Jim Powell: Yes. John Templeton invested in Peru when the Shining Path and Tupac Amaru were going around and slaughtering people, literally chopping their heads off—much like ISIS does today—and blowing up railroads, and so forth, and the investment community had thought Sir John had taken leave of his senses.

Eventually, Peru turned around. They got rid of those problems and Peruvian economy made a great big bounce and Sir John actually made more money in percentage terms from his Peruvian investments than he did from anything else.

Steven Halpern: Now, you suggest that no country in the world has greater potential for rebounding growth than Brazil. Can you talk a little about the specifics for Brazil and its long-term prospects?

Jim Powell: Brazil has everything. Brazil has agricultural commodities, it has mineral commodities, it has energy, and the new field of energy that is coming online. It has a very energetic workforce. It’s industrialized. It has the vast Amazon area that it is expanding into. I’m really very bullish on Brazil long-term.

Steven Halpern: Now, for investing in Brazil, you point to a specific exchange traded fund. Could you tell our listeners about this ETF?

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Jim Powell: Yes. The iShares Brazil Fund—symbol (EWZ)—invests in the major index of Brazilian stocks and that’s the way for US investors to take positions.

By the way, let me just say that if you have children, or grandchildren, or you’re a younger listener who’s got a long-term retirement plan, I don’t think that you can do better in terms of percentage gains than you will with emerging markets.

Steven Halpern: Now, as another recovering fallen angel, you point to the Philippines. What’s the story there?

Jim Powell: The Philippines are the overlooked Asian country. I think they are overlooked because they are rather familiar to Americans. It has been an important country for us in World War II and in subsequent years.

The Philippines remind me, actually, of Brazil 20 years ago and I think they have the same sort of potential with a couple of advantages.

Most people in the Philippines—that are in the workforce—speak English. We have a long association between the Philippines and the United States. They kind of understand how we do business—and how we think—and those are big advantages. The Philippines are also industrializing and they are putting a special emphasis on technology.

Steven Halpern: Now, in this case, you also suggest an ETF, which fund should investors consider?

Jim Powell: Once again it’s an iShares Fund. The iShares Philippine Fund—(EPHE) is the symbol—and it is also an index fund.

Steven Halpern: Now, a third fallen angel market you suggest is Russia. Could you share your outlook and perhaps touch on some of the recommended vehicles for those who want to speculate on this market?

Jim Powell: I think the best position to take on Russia is to look past President Putin. It’s the situation of this too shall pass in the sense that it’s a bad situation for Russia, he’s holding them back.

Russia has absolutely vast mineral and energy wealth and they are signing deals right and left with China, not only for the minerals and energy, but also exchange agreements with their currencies so that they can do business without having to go through the US dollar.

I just think that there is no holding Russia back. They are never going to go back to their collectivist past. They may not be the, sort of, capitalist society that we have, but nevertheless, it will be very successful long-term and Russia right now is selling very, very cheaply and I really do recommend that people with long-range horizons invest in Russia at these levels.

Steven Halpern: Now, is there a specific way somebody should consider investing?

Jim Powell: Yes. I like the Market Vectors Russia Fund, symbol (RSX). That’s the way for Americans to make their investments.